• Alper Işıkal

THE PROHIBITION OF PRICE FIXING IN TURKISH LAW


The Basis for the Protection of Competition:

As stated by the Competition Authority (the “Authority”), a market economy system is applied in our country. This refers to a system in which the economy is not left to any decision-making unit; on the contrary, the economy is determined according to market dynamics. It has also been clearly stated by the Authority that the basic element of this economy-determined market is competition and that the market economy will become functional in the presence of a healthy competitive environment.


For the concept of competition, the Authority acted on the basis of the definition of "The process of relations in the form of a race or opposition between economic units in order to achieve certain economic goals such as profit, sales amount and market share." The Authority foresees that, thanks to this competition, it is possible for companies to be efficient, to produce high quality and low-cost good and services, to allow new entries to the market, to enhance the ability of companies to make independent decisions, to increase the welfare level of the consumer, and to stimulate new inventions and technological developments.


Consider this foresight together with Article 167 of the Constitution, which states “The State takes measures to ensure and improve the healthy and orderly functioning of money, credit, capital, goods and services markets; and prevents monopolization and cartelization that may arise as a result of actual or agreement in the markets.” In order to ensure the healthy functioning of the market economy and the competition that supports it, and to prevent the abuse of the right to compete, legal protection has been introduced by Law No. 4054 on the Protection of Competition (“CompetitionLaw”).


An Overview of the Purpose of the Competition Law and its Prohibited Activities:

An abuse of the right to compete mainly occurs in the following situations:

  • Distortion of competition by breach of the rules of good faith or by deceptive behaviour; in other words, unfair competition: This issue is regulated in the Turkish Commercial Code and the Turkish Code of Obligations. Examples include: to denigrate the products or activities of a competitor or of another business; to give false information about the moral or financial situation of another business; to provide false or misleading information about one’s own products and activities; to act as if own has some prize or certificate that does not actually exist; in order to influence the preferences of the consumer, to try to benefit from the reputation of others by creating confusion in the promotional names and signs, such as the brand, business name, logo, or product packaging that others promote; and obtaining, using, or disclosing the trade secrets of others without a justification.

  • Influencing markets in terms of goods and services, restricting competition and agreements and decisions in this direction: This is included in Article 4 of the Competition Law and is detailed below.

  • Abuse of dominant position: This is covered by Article 6 of the Competition Law.

  • Mergers or acquisitions that create or strengthen a dominant position: These are governed by Article 7 of the Competition Law.

Considering these issues, which cause an abuse of the right to compete and prevent competition, the stated purpose of the Competition Law is to prevent agreements, decisions, and practices that prevent, distort, or restrict competition in the goods and service markets, and to prevent the abuse of dominance by the undertakings that dominate the market, and to ensure the protection of competition by making the necessary regulations and inspections.


Article 4 of the Competition Law: Agreements, Concerted Practices and Decisions Limiting Competition:

At this point in this information note, we should examine the scope of price fixing under Article 4 of the Competition Law, which is titled as Agreements, Concerted Practices and Decisions Limiting Competition under the heading of Prohibited Activities.


Article 4 of the Competition Law states:

Article 4- Agreements and concerted practices between undertakings[1], and decisions and practices of associations of undertakings[2] which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.


Such cases are, in particular, as follows:

a) Fixing the purchase or sale price of goods or services, elements such as cost and profit which form the price, and any condition of purchase or sale,

b) Allocation of markets for goods or services, and sharing or controlling all kinds of market resources or elements,

c) Controlling the amount of supply or demand for goods or services, or determining them outside the market,

d) Complicating and restricting the activities of competing undertakings, or excluding undertakings operating in the market by boycotts or other behaviour, or foreclosing the market to potential new entrants,

e) Except exclusive dealing, applying different terms to persons with equal status for equal rights, obligations and acts,

f) Contrary to the nature of the agreement or commercial practices, requiring the purchase of other goods or services together with a good or service, or tying a good or service demanded by purchasers acting as intermediary undertakings to the condition of displaying another good or service by the purchaser, or putting forward terms as to the resupply of a good or service supplied.


In cases where the existence of an agreement cannot be proved, a similarity of price changes in the market, or the balance of demand and supply, or the operational regions of undertakings to those markets where competition is prevented, distorted or restricted, constitutes a presumption that the undertakings are engaged in concerted practice.


Each of the parties may relieve itself of the responsibility by proving, on the basis of economic and rational facts that it has not engaged in concerted practices.


The grounds for Article 4 of the Competition Law are stated as follows:

Since the purpose of this Act is the protection of competition, agreements and practices between undertakings which prevent, restrict or distort competition must be prohibited. For the purposes of the article, the term agreement is used to refer to all kinds of compromise or accord to which the parties feel bound, even if these do not meet the conditions for validity as regards the Civil Law. It is not important whether the agreement is written or oral. Even if the existence of an agreement between the parties cannot be established, direct or indirect relations between the undertakings that replace their own independent activities and ensure a coordination and practical cooperation are prohibited if they lead to the same result. Thus, it is intended to prevent the undertakings from legitimizing acts limiting competition via fraud against law. Most of the time, in order to deal with their common problems, undertakings form associations among themselves that may or may not have a legal personality. These associations can take decisions that serve to generate more earnings for their members by preventing competition between the members. Such decisions are also against the competition system and are prohibited.


Agreements restricting competition may be in the form of vertical or horizontal agreements. Agreements made within the same level are called horizontal agreements and it is accepted that these agreements have competition distorting effects per se. Based on this view, the second paragraph of the Article lists the most common agreements limiting competition and emphasizes that these types of agreements are prohibited per se. It must also be noted that the examples mentioned in this paragraph are not restraining, but enumerated.


In a legal regime where agreements restricting competition are prohibited, these agreements are generally made in secret and proving their existence is quite difficult, sometimes even impossible. For this reason, in case the circumstances stated in the third paragraph of the article exist, presumption that undertakings are engaged in concerted practice has been accepted. Thus the burden of proof for not being engaged in concerted practice has been passed to the relevant undertakings and it has been intended to prevent that the Act became unworkable due to the difficulty of proof.


When this Article and the its grounds are read in detail, several important points emerge that should be emphasized:

  • In Article 4, some non-limiting examples are included. In other words, other situations can also be described as agreements, practices, and decisions restricting competition, even if they are not listed in Article 4 of the Competition Law.

  • The “agreement” mentioned in the article should be considered in a broader context. Even if if an “agreement” is not considered a valid agreement or contract within the framework of the Civil Law, any such written or verbal “agreement” to which the parties feel bound and that, in fact, constitutes a violation of competition is considered as a competition-restricting agreement in violation of the Competition Law.

  • It is very difficult to prove the existence of these undocumented or informal agreements, since they are usually made in secret. Being aware of this situation, the legislature has enacted that, even in cases where the existence of the agreement cannot be proven, if the price changes in the market are similar to those in the markets where competition is prevented, distorted or restricted, there is a presumption that the undertakings are in concerted practice. The parties to the undertaking then have the burden of proving that they are not acting in concerted.

Exemption:

Some exemptions to the prohibitions specified in Article 4 of the Competition Law have been included in Article 5, as follows:

Article 5- (Amended paragraph: 16.06.2020-7246/Article 1) [2] Agreements between undertakings, concerted practices and decisions of associations of undertakings are exempt from the application of Article 4 provisions, provided they fulfill all of the requirements below:


a) They must ensure new developments or improvements or economic or technical improvement in the production or distribution of goods, and in the provision of services,

b) The consumer must benefit from the above-mentioned,

c) They must not eliminate competition in a significant part of the relevant market,

d) They must not restrict competition more than necessary to achieve the goals set out in sub-paragraphs (a) and (b).


(Additional paragraph: 16.06.2020-7246/Article 1) Relevant undertakings or associations of undertakings may make an application to the Competition Authority in order to have the Board confirm that the agreements, concerted practices or decisions of associations of undertakings falling under Article 4 meet the requirements of the exemption.


(Amended paragraph: 02.07.2005-5388/Article 1) [3] Exemption may be granted for a definite period, just as the granting of exemption may be subjected to the fulfilment of particular terms and/or particular obligations. Exemption decisions are valid as of the date of concluding an agreement or committing a concerted practice or taking a decision of an association of undertakings, or fulfilling a condition if it has been tied to a condition.


In case the requirements mentioned in the first paragraph are fulfilled, the Board may issue communiqués which ensure block exemptions for the types of agreements in specific subject-matters and which indicate their terms.


When this Article is read in detail, it can be seen that the permission or exemption is granted to certain agreements, concerted practices, and decisions, provided that all the following conditions are met:

As a result of an inter-company agreement:

  • If economic or technological development is provided,

  • If consumers benefit from it, and

  • Competition in the market is not significantly eliminated and is not limited more than necessary.

Exemptions can include a block exemption or an individual exemption. A block exemption is valid for a certain type of agreements within the scope of the communiqués, for example: Block Exemption Communiqué On Vertical Agreements In The Motor Vehicles Sector (COMMUNIQUÉ NO. 2017/3); Block Exemption Communiqué On Research And Development Agreements (Communiqué No: 2016/5); Block Exemption Communiqué On Specialization Agreements (Communiqué No: 2013/3); and Block Exemption Communiqué on Vertical Agreements (Communiqué No: 2002/2) all of which are issued by the Competition Board. Individual exemptions are evaluated for agreements, actions, and decisions that prevent competition, but which are not included in such block exemptions.


Horizontal and Vertical Agreements:

Agreements within the scope of the Competition Law arise horizontally and vertically.

  • Horizontal agreements: In the case of an agreement between existing or potential competitors, the cooperation has a "horizontal" character.

  • Vertical agreements: These are defined as agreements between two or more undertakings operating at different levels of the production or distribution chain for the purpose of buying, selling, or reselling certain goods or services.

Price Fixing Prohibition:

As stated above, in our country, there is a competitive element based on a market economy. Its goal is for companies to determine prices freely and ultimately to reach the desired welfare level. Otherwise, individuals in the market (providers, manufacturers, retailers, etc.) would determine among themselves the selling price of the goods and services in question, and as a result, competition would be limited. In order to avoid this situation, the legislation explicitly prohibited price fixing with Subparagraph (a) of Paragraph 2 of Article 4 of the Competition Law.


As can be seen in that provision, fixing the purchase or sale price of goods or services, elements such as cost and profit which form the price, and any condition of purchase or sale are determined to be prohibited activities. The wording is clear: the fixing of the purchase or sale price of the goods is prohibited.


Price fixing can be by horizontal agreements (for example, the agreement between two manufacturers) or vertical agreements (for example, the agreement between the manufacturer and the retailer).


Examples of price fixing can include: raising prices, fixing them, determining minimum prices, removing discounts, determining discount rates and profit margins, determining standard price formulas, cartels, and repricing. However, it should be noted that price fixing is not limited to these examples.


Administrative Fines:

Articles 16/3 and subsequent sections of the Competition Law stipulate that an administrative fine will be imposed on undertakings or associations of undertakings that engage in prohibited actions. The relevant articles are as follows;

To those who commit behaviour prohibited in Articles 4, 6 and 7 of this Act, an administrative fine shall be imposed up to ten percent of annual gross revenues of undertakings and associations of undertakings or members of such associations to be imposed a penalty, generated by the end of the financial year preceding the decision, or generated by the end of the financial year closest to the date of the decision if it would not be possible to calculate it and which would be determined by the Board.

In case administrative fines mentioned in paragraph three are imposed on undertakings or associations of undertakings, an administrative fine up to five percent of the penalty imposed on the undertaking or association of undertakings shall be imposed on managers or employees of the undertaking or association of undertakings who are determined to have a decisive influence in the infringement.


When deciding on an administrative fine pursuant to paragraph three, the Board shall take into consideration issues such as the repetition of infringement, its duration, market power of undertakings or associations of undertakings, their decisive influence in the realization of infringement, whether they comply with the commitments given, whether they assist with the examination, and the severity of damage that takes place or is likely to take place, within the context of Article 17 paragraph two of the Law of Misdemeanours dated 30/3/2005 and numbered 5326.


To those undertakings or associations of undertakings or their managers and employees making an active cooperation with the Authority for purposes of revealing violations of the Act, penalties mentioned in paragraphs three and four may not be imposed or reductions may be made in penalties to be imposed pursuant to such paragraphs taking into consideration the quality, efficiency and timing of cooperation and by means of demonstrating its grounds explicitly.


Issues taken into consideration in setting administrative fines to be imposed pursuant to this Article, terms for immunity from or reduction of fines in case of cooperation, and procedures and principles in relation to cooperation shall be determined by regulations to be issued by the Board.


Procedure in Examinations and Inquiries of the Board:

The procedure for the examination and inquiries of the Board is detailed in Articles 40 subsequent sections of the Competition Law. Accordingly, on its own initiative or upon the applications filed with it, the Board decides to open a direct investigation or to conduct a preliminary inquiry for determining whether or not it is necessary to open an investigation.


Based on criteria such as market share and turnover, the Board may decide not to initiate an investigation concerning those agreements, concerted practices and decisions, and actions of associations of undertakings, that do not significantly restrict competition in the market. This discretion does not apply to obvioius and hard-core infringements, such as price fixing between competitors, region and customer allocation, and supply restriction.


If the Board determines that the claims in the denouncement or complaint applications are serious and sufficient, informers or complainants are so notified that an inquiry has been initiated.


In cases where the Board either expressly rejects applications, or is deemed to have rejected them by means of not notifying within required period (in 60 days), anyone with a direct or indirect interest in the matter may litigate the rejection decision of the Board.


Complaint to the Board:

All persons and organizations may file a complaint with the Competition Authority regarding practices that they consider to be a violation of competition. In addition, applications made in the form of notices are also taken into account.


Applications to the Authority must be in writing and can be sent by mail or delivered to the Authority in person, or by other means such as e-mail, fax, and telephone. Such applications are considered as notification.


In order for the application to be examined in a short time, it would be beneficial to submit to the Authority as much detailed information as possible and the document, if any, regarding the subject of the complaint. No fee or any other cost is charged for any complaint or application made to the Competition Authority.


Applications should include the following:

  • For applications made by real persons, the applicant's name and surname, citizenship number, address and signature,

  • In applications made by legal entities, the trade name/business name, address, signature circular of the legal entity and the signature of those authorized to represent and bind the legal entity according to this circular,

  • In applications made by a representative, the original or duly certified copy of the document showing that the representative is authorized, the address of the representative and the real or legal person represented, and the signature of the representative,

The applications may request that the identity of the applicant be kept confidential. In this case, the identity of the person concerned and any information that may cause his/her identity to be known will not be included in any correspondence.


It is essential not to take any action with respect to submissions that are only abstract statements claiming the existence of a violation, are not based on concrete information and/or documents, and are considered not to be seriously and adequately put forward.


Legal action may be taken against those who deliberately provide false or misleading information during their application to the Authority.


Right to Compensation:

Under Article 57 of the Competition Law:

Anyone who prevents, distorts or restricts competition via practices, decisions, contracts or agreements contrary to this Act, or abuses his dominant position in a particular market for goods or services, is obliged to compensate for any damages of the injured. If the damage has resulted from the behaviour of more than one people, they are responsible for the damage jointly.


Article 58 of the Competition Law contains details on the calculation of compensation to be paid. It directs that:

Those who suffer as a result of the prevention, distortion or restriction of competition, may claim as a damage the difference between the cost they paid and the cost they would have paid if competition had not been limited. Competing undertakings affected by the limitation of competition may request that all of their damages are compensated by the undertaking or undertakings which limited competition. In determining the damage, all profits expected to be gained by the injured undertakings are calculated by taking into account the balance sheets of the previous years as well.


If the damage arises from an agreement or decision or gross negligence of the parties, the judge may, upon the request of the injured, award compensation by three fold of the material damage incurred or of the profits gained or likely to be gained by those who caused the damage.


Burden of Proof:

The burden of proof in cases in which the injured one is substituted with a claim for compensation is in line with Article 59 of the Compensation Law, which states:


Should the injured submit to judicial bodies proofs such as, particularly, the actual allocation of markets, stability observed in the market price for quite a long time, price increases within close intervals by undertakings operating in the market, which give the impression of the existence of an agreement, or the distortion of competition in the market, then the burden of proof is on the defendants that the undertakings are not engaged in concerted practice.


The existence of agreements, decisions and practices limiting competition may be proved by any kind of evidence.

[1] Natural and legal persons who produce, market, and sell goods or services in the market, and units which can decide independently and constitute an economic whole [2] Any kind of associations with or without a legal personality, which are formed by undertakings to accomplish particular goals

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